'Net metering' a rate-payer funded giveaway to big solar

Over the next two years, solar rooftop companies like SolarCity are hanging their stockings with care, in hopes that hefty government handouts still will be there. After the end of 2016, the guarantee of the Solar Investment Tax Credit will run out and net metering, with its disputed terms, will become more widespread.

Net metering proponents hope there won’t be any coal in their stockings when it comes to other ratepayers subsidizing their “free” solar panels. Of course, the panels aren’t really free.

The handout in the form of a 30 percent tax credit was originally designed to go to consumers eager to participate in net metering and reduce their energy costs by installing their own solar panels. Instead, the credit increasingly has gone to the leasing companies, the rooftop solar installers, or to tax equity investors.

Leasing the panels to affluent customers, companies like SolarCity have securitized their power purchase agreements, raising more than $326 million in asset-backed notes to stay afloat. They’ve even diversified, getting into the loan business for those customers who still want to own their panels.

However, a government report indicates that poorer customers who can’t buy the panels outright are often unable to secure the leases.

In March 2014, the Congressional Research Service called the tax credit a “windfall gain” for those who otherwise would have invested out of concern for the environment. Since the vast majority of installations continue to come through purchase agreements, the jingle you hear is the coin in the rooftop company’s coffers.

SolarCity admitted as much in 2013. “Our business currently depends on the availability of rebates, tax credits and other financial incentives,” the company wrote. “The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.”

A quiet proxy battle of sorts has been raging between solar advocates and companies like Xcel Energy, with ratepayers caught in the middle.

At issue is the method of calculating the “value of rooftop solar,” as the Public Utilities Commission chairperson put it this year. Solar proponents believe the credits for excess electricity generated by solar panels and pushed back onto the grid should continue to get 10.5 cents per kilowatt-hour — the average of annual residential retail rates.

Xcel is arguing for a reduction to 4.6 cents, saying the costs associated with maintaining the grid made the reimbursement unfair.

Xcel representatives called maintaining the 10.5-cent credit a “hidden cost” for its 1.2 million Colorado ratepayers. “Everybody needs to pay for the cost of the grid,” said spokesperson Hollie Velazquez Horvath.

Rooftop solar uses the grid in multiple ways. For customers pulling energy when the sun isn’t out (or near maximum generation) or pushing electricity onto the grid at the peak of summer, the grid balances supply and demand, regulating and stabilizing electrical output. It also acts as the exchange mechanism when a customer goes from generating and reselling excess electricity, to periods when the customer needs more electricity than the solar panel provides.

Customers who generate enough “revenue” from their net metering credits end up paying little or nothing for the grid costs. The costs get shifted to the utilities’ non-solar customers.

In other words, solar proponents advocate that non-solar ratepayers continue to subsidize grid maintenance for solar customers and then purchase electricity from those same solar customers at a price higher than they would pay for Xcel to generate the power.

Some of the side effects of net metering are already known. Cost shifting disproportionately affects lower-income ratepayers, who can’t afford the solar panels anyway. Further, some solar installations don’t deliver the promised generation and end up costing the customer double, as they pay for the panels and the grid-based electricity.

In 2014, the PUC held three informal meetings on net metering, yet has issued no ruling so far. Legislative action is likely to come in 2015, and possibly a 2016 ballot initiative from rooftop solar proponents.

Both Xcel and its opponents see a credit reduction for net metering as a reduction in solar demand. According to the Energy Information Administration, Colorado generated just 0.5 percent of its total electrical output through solar.

In the meantime, just like the post-holiday hangover, you get the bill.

Michael J. Sandoval is a Research Associate for the Independence Institute’s Energy Policy Center specializing in investigative research and government transparency.